WHAT TO WATCH: THE FED

The FedOne of the biggest questions in the weeks ahead is: What will the Fed do?

Remember that the Fed is now purchasing $35 billion in Treasuries and $30 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based) to help stimulate the economy and housing market. This is down from the original $85 billion per month that the Fed had been purchasing. The minutes from the Fed’s recent meeting of the Federal Open Market Committee revealed a lack of consensus on this topic. If economic data continues to be weak, the Fed may have to rethink the tapering it has begun.

In addition, the minutes also provided mixed signals about the Fed Funds Rate. Some Fed members indicated that they felt uncomfortable with the ongoing accommodative stance, which suggests they may be leaning towards higher rates sooner rather than later. However, other Fed members continued to believe that rates should remain low for the foreseeable future.

Finally, let’s not forget that the Fed is undergoing a change in leadership. That said, new Federal Reserve Chair Janet Yellen pledged last month to continue her predecessor’s policies by scaling back stimulus in “measured steps.” She said she’s “committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level.”

The bottom line is that any news story involving the Fed may impact home loan rates in the coming weeks and months. I will continue to watch the latest economic reports, as well as statements made by Fed members.

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